 "(File) US President Donald Trump. Reuters")
On 26 August, US President Donald Trump announced a sweeping 50 per cent tariff on Indian imports, effective from 27 August. Justified in Washington as retaliation for India’s continued trade with Russia and its leadership role in BRICS, this tariff shock has rattled policymakers and exporters alike. Yet the biggest irony is this — it will hurt American consumers before Indian exporters feel the pain. Clothes, jewellery, seafood, carpets and leather goods sourced from India will suddenly cost much more in US stores, squeezing household budgets and retail businesses.
Trump has squandered years of careful diplomacy. Since the Bill Clinton–Atal Bihari Vajpayee tango, successive governments on both sides worked to nurture a partnership between the world’s topmost democracies. This relationship was elevated further under George W Bush and Manmohan Singh, institutionalised under Barack Obama and strategically deepened by Narendra Modi, even as Joe Biden was circumspect. Trump’s decision undermines this bipartisan consensus and trades away long-term strategic gains for short-term populism.
The scale of the tariff shock
The numbers are stark. The US accounted for $87 billion of India’s exports in FY25. The new tariffs will directly affect 55-66 per cent of this trade, valued at around $48–60 billion. For vulnerable sectors such as textiles, gems, shrimp and chemicals, exports to the US could plunge by as much as 70 per cent. Analysts project an overall 43 per cent decline in US-bound shipments, which could shave 0.4–1 per cent off India’s GDP growth in FY26 and put hundreds of thousands of jobs at risk.
Some sectors remain largely unscathed. Pharmaceuticals ($12.7 billion), electronics ($10.6 billion) and refined petroleum ($4.1 billion) are exempt, leaving about 30 per cent ($27.6 billion) of exports duty-free. But for India’s labour-intensive, job-rich industries, the hit is severe.
Modi’s track record: Resilience in adversity
India has faced global shocks before. Narendra Modi’s career is defined by an ability to turn crises into opportunities.
As chief minister of Gujarat, he rebuilt the state after the devastating 2001 Bhuj earthquake, transforming it into a model of industrial recovery.
Isolated by sanctions and boycotts in the 2000s, he nevertheless drew record foreign investment into Gujarat, creating a manufacturing hub.
As prime minister, he navigated the twin disruptions of demonetisation and the Covid-19 pandemic by accelerating digital adoption, expanding welfare coverage and reforming supply chains.
Impact Shorts
More ShortsModi’s governance style has consistently been about absorbing external shocks, supporting domestic industry and diversifying risk. The current tariff crisis is likely to be tackled in the same manner — through a combination of retaliation, diversification, domestic incentives and multilateral action.
Sector-by-sector fallout and strategies
Textiles and apparel
Impact:
India exports $10.3–10.8 billion of textiles and apparel annually to the US, or about 29 per cent of total sector exports. With a 50 per cent tariff, Indian goods face a 30–31 per cent cost disadvantage against Bangladesh and Vietnam. US shipments could drop 70 per cent (a $7–7.5 billion loss), threatening 150,000–200,000 jobs in hubs like Tiruppur and Bengaluru.
Response:
Diversify:
Redirect 20-30 per cent exports to the EU (potential rise to $15 billion, especially in Germany and France under FTAs) and ASEAN (Vietnam, Indonesia; untapped $5 billion market). India’s textile exports to Asia grew 15 per cent YoY in 2024, demonstrating potential.
Retaliate
Tariffs of 20-25 per cent on US cotton ($1.2 billion imports) and apparel ($500 million). India used similar tools in 2019, cutting US market share without escalating deficits.
Domestic incentives: Interest subsidies of 5-7 per cent on export credit and GST refund acceleration could boost competitiveness by 10-15 per cent, based on PLI scheme impacts in 2024.
Gems and jewellery:
Impact: India exports $10 billion worth of gems and jewellery annually to the US, nearly 30 per cent of global trade. Tariffs could wipe out $7 billion in exports, endangering 150,000–200,000 jobs in Surat and Mumbai. Competitors like Thailand may capture 10–15 per cent of the market.
Response:
Diversify:
Push deeper into the UAE (current $8 billion, +20 per cent potential under CEPA) and the UK (untapped $4 billion post-Brexit). OEC data shows exports to non-US markets grew 12 per cent in 2024.
Retaliate:
Levy 15–20 per cent tariffs on US precious metal imports ($2 billion). India’s 2019 measures in similar categories stabilised domestic markets without sparking inflation.
Domestic incentives: Expand SEZ benefits for duty-free inputs, cutting costs by 15 per cent. Promote lab-grown diamonds, a market growing 25 per cent annually, where India could claim 30 per cent of the $80 billion global market.
Seafood (primarily shrimp)
Impact:
India exports $7.4 billion of seafood to the US, nearly 48 per cent of the sector’s revenue, with shrimp contributing $2.4 billion. A 50 per cent tariff could erase $2.9 billion in earnings, crippling shrimp farms in Visakhapatnam and shifting US market share to Pakistan and Thailand.
Response:
Diversify:
Focus on Japan and the EU (combined $3 billion, with $2 billion additional potential). EU seafood imports from India grew 18 per cent in 2024.
Retaliate:
Impose 25 per cent tariffs on US seafood and agri imports ($500 million). India has won similar WTO disputes before, reducing US exports by 15 per cent.
Domestic incentives:
Subsidise aquaculture technology to raise yields by 20 per cent (ICAR data). Faster refunds could offset 30 per cent of tariff losses.
Leather and footwear
Impact: The US buys $870 million of India’s $4.1 billion leather and footwear exports. A 50 per cent tariff could wipe out $600 million, forcing job cuts in 20 per cent of export units.
Response:
Diversify: Expand to Africa and Latin America (untapped $2 billion). India’s exports to these regions grew 22 per cent in 2024 under AfCFTA.
Retaliate: 20 per cent tariffs on US leather imports ($300 million), echoing 2018 actions that boosted domestic output by 10 per cent.
Domestic incentives: PLI rebates up to 15 per cent for eco-friendly leather, reducing costs by 12 per cent while catering to a $400 billion global sustainable fashion market.
Chemicals (organic and others)
Impact: Organic chemicals worth $2.7 billion go to the US annually. A 70 per cent decline could cost India $1.9 billion, with downstream effects on pharmaceuticals.
Response:
Diversify: Target China and ASEAN (potential $5 billion; exports grew 14 per cent in 2024 due to supply chain shifts).
Retaliate: Duties on US chemical imports ($3 billion), potentially at 25 per cent, would mirror global trade war precedents.
Domestic incentives: Tax breaks for R&D in green chemicals, tapping into the projected $100 billion global market by 2030.
Metals and machinery
Impact:
India exports $4.7 billion in metals and $6.7 billion in machinery to the US A 50 per cent tariff could halve exports, costing $7 billion combined.
Response:
Diversify:
Direct metals to the Middle East and Africa ($10 billion potential; +16 per cent in 2024) and machinery to the EU and Japan ($8 billion potential; +11 per cent growth in 2024).
Retaliate:
Impose 25 per cent tariffs on US metals ($1.5 billion) and 20–25 per cent on US machinery ($5 billion).
Domestic incentives:
Channel overcapacity into domestic projects under PM Gati Shakti, where infrastructure growth is projected at 10 per cent in FY26.
Agri-food (basmati, spices, tea)
Impact:
Exports worth $6 billion face tariffs, risking a 20 per cent decline ($1.2 billion loss). Pakistan and Thailand could displace India in basmati and spices.
Response:
Diversify:
Expand sales to Middle East and Africa ($4 billion potential; +19 per cent in 2024).
Retaliate:
20 per cent duties on US almonds ($1 billion imports). In earlier disputes, such measures reduced US market share by 15 per cent.
Domestic incentives:
RoDTEP export subsidies of 5 per cent and investments in quality certifications could enhance competitiveness by 10–15 per cent.
Cross-sector strategies
Retaliation:
Tariffs on $50–60 billion of US imports, especially mineral fuels ($12.9 billion) and machinery.
Diversification:
**Non-US exports already constitute 70 per cent of India’s trade, growing 15 per cent in emerging Asia and Africa in 2024.
Domestic support
GST reforms, accelerated SEZ clearances and targeted subsidies worth $10 billion could cushion 20–30 per cent of losses, based on crisis responses in 2023.
Multilateral action:
India could challenge the tariffs at the WTO, where it has historically won 80 per cent of disputes, recovering $1–2 billion annually in damages.
America’s loss, China’s gain
Trump’s tariffs may have another unintended consequence: driving India reluctantly closer to China. Despite the bitter legacy of the 1962 war and the violent 2020 Galwan clash, India may now turn to Beijing within frameworks like BRICS+ to offset US volatility. Washington risks undermining its own Indo-Pacific strategy, handing Beijing greater leverage in Asia.
A civilisational perspective
India is a civilisation so old that historians struggle to trace back to its date of inception. It has survived empires, invasions, colonialism and partition. The United States, by contrast, is a product of the post-Industrial Revolution, scarcely two and a half centuries old. Trump may believe he is punishing India, but history suggests otherwise: India cannot be brow-beaten into submission.
As Modi’s track record shows, crises are met with resilience and reform. This tariff shock will accelerate diversification, deepen domestic capabilities and harden India’s self-reliance. The US will discover soon enough that in this trade war, it is America First that suffers first, while India endures—untamed, unbroken and determined.
The author is a senior journalist and writer. Views expressed in the above piece are personal and solely those f the author. They do not necessarily reflect Firstpost’s views.
**